Commentary and analysis on markets, personal finance, and wealth building from a contrarian perspective. "I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting there and trying to dream it up all yourself. Nobody’s that smart."
— Charlie Munger

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Friday, December 2, 2016

Will the Met coal price spike save Mongolia?

Over 60 kilometers, they line up: truck after truck, after
truck. Nearly every one of them is laden with coal.

The world’s longest tailback has been building for months
and has varying drivers: first, China’s drought prompted Beijing to slash
water-intensive coal production; last, President-elect Donald Trump fanned
revival for the least loved of commodities by casting doubt on the world’s
commitment to outmode coal.

In the background, a newly installed government in
Ulaanbaatar was quietly negotiating its way out of the economic crisis it
inherited.

Last week, those negotiations came out into the open.
Erdenes Tavan Tolgoi, the state-owned miner of the world’s largest undeveloped
coal deposit, announced it had negotiated an 85% price jump in its
average selling price to $50 a ton from December, rising to $60 for 2017.
Mongolia had been selling its coal at only $32 as part of a settlement for debt
owed to the Aluminum Corporation of China, or Chalco. In another part of Tavan
Tolgoi, Mongolia Mining Corp. had already struck a deal to sell its premium
washed variety of coal at $107.

So what’s the big deal? Right now, Mongolia is pleading
poverty. Mounting debt has driven the government into talks with the
International Monetary Fund. It’s been whacked with two credit rating
downgrades in as many weeks.

Yet, sales of coal – coupled with rising earnings from the
country’s other main resources, namely copper, gold and iron ore – appear
destined to rescue this nation of 3 million people, with or without foreign
handouts.

So this is the news I was looking for. If this article is in fact accurate than my speculation in Mongolia Mining Corp. and my decision to add to my Mongolia Growth Group Holdings should benefit in the extreme.